DOLLAR RISES AFTER FED MINUTES AS JACKSON HOLE SYMPOSIUM STARTS
The dollar index rose today after the Federal Reserve released the minutes for the previous meeting yesterday. The minutes showed that officials were optimistic about a rate increase in September but uncertain about what to do in December. The officials were concerned that the trade conflict currently underway would affect growth. As a result, the probability for a December rate hike dropped to 63%. There were also concerns about the language of future statements, with some officials recommending the language on Fed’s accommodative stands on rates. Some officials such as the Atlanta Fed chair, Richard Bostic have opposed interest rates that would invert the yield curve.
The annual Federal Reserve of Kansas symposium will begin at the resort town of Jackson Hole. This is an annual summit that brings together the heads of central banks and leading economists from around the world. This will be the first summit for the new Fed chair, Jerome Powell. Traders will look out for his statements, in addition to those of other central bank chairs. However, in the past, the summit has been a bit ‘boring’ from a market perspective because the officials rarely make major statements.
Manufacturing data from Europe was mixed. The German Manufacturing PMI data for August was at 56.1, which was lower than the expected 56.5. In July, the PMI was at 56.9. From the EU, the data from IHSMarkit showed that the PMI was at 54.6, which was lower than the expected 55.1. This data was supported by France whose PMI was at 53.7, which was lower than the expected 53.5. The data shows that the European Union is still having a problem in the manufacturing industry, as trade tensions accelerate. Still, the weaker euro has provided some support for the EU economy.
The Australian dollar fell as the country was thrown into a political crisis. The crisis started two days ago when the prime minister, Malcolm Turnbull survived an ouster bid brought by one of his ministers. After losing, the minister resigned and went to the backbench. His resignation led to more resignations from the cabinet, leaving the prime minister isolated. There is a likely chance that Turnbull – who has been asked to resign – will not survive the onslaught. In the past ten years, the country has had five prime ministers. Under Turnbull, the Australian dollar has moved sideways against the US dollar.
The Euro jumped after the European Central Bank (ECB) released the minutes of the previous meeting. The minutes showed that officials were increasingly optimistic of the EU economy hitting the inflation target. They were however concerned about the risks of the escalating trade war. The minutes also showed the officials pushing back against criticism that their prediction of future rate hikes ‘at least through summer’ was too vague.
The EUR/USD fell slightly today, in line with the cup and handle pattern created in the past few days. After the ECB minutes, the pair rose as traders viewed them as being hawkish. The pair is now trading at 1.1577, as it tries to reach the resistance level of 1.1620. The double exponential moving average indicator shows that the pair is likely to continue moving lower as the shorter-term EMA cross the longer-term EMA.
The AUD/USD pair fell after political uncertainty rocked Australia. The pair fell from an intraday high of 0.7370. The current level is between the 38.2% and 23.6% Fibonacci Retracement levels. It is also below the 21-period exponential moving average as shown below. As the political uncertainty continues, the pair could continue moving lower and possibly reach the 0.7260 level.
The GBP/USD pair started declining in April. The pair has moved from 1.4377, and last week it reached a low of 1.2663, halting the decline. This week, the pair has moved up slightly and is currently trading at 1.2880, which is a major resistance level as shown below. The 21 and 50-period EMAs are currently almost on the same level as the market price. The MACD is at the highest level since April. This is an indication that the pair could resume the downward trend.